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Fair Value Of Financial Instruments | 3 Months Ended
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Sep. 30, 2021
Fair Value Of Financial Instruments [Abstract] |
Fair Value Of Financial Instruments | 4. Fair value of financial instruments Initial recognition and measurement Financial instruments are recognized when the Company becomes a party to the transaction. Initial measurements are at cost, which includes transaction costs. Risk management The Company manages its exposure to currency exchange, translation, interest rate, customer concentration, credit and equity price and liquidity risks as discussed below. Currency exchange risk The Company is subject to currency exchange risk because it purchases inventories that it is required to settle in other currencies, primarily the euro and U.S. dollar. The Company has used forward contracts in order to limit its exposure in these transactions to fluctuations in exchange rates between the South African rand (“ZAR”), on the one hand, and the U.S. dollar and the euro, on the other hand. Translation risk Translation risk relates to the risk that the Company’s results of operations will vary significantly as the U.S. dollar is its reporting currency, but it earns most of its revenues and incurs a significant amount of its expenses in ZAR. The U.S. dollar has fluctuated significantly against the ZAR over the past three years. As exchange rates are outside the Company’s control, there can be no assurance that future fluctuations will not adversely affect the Company’s results of operations and financial condition. 4. Fair value of financial instruments (continued) Interest rate risk As a result of its normal borrowing activities, the Company’s operating results are exposed to fluctuations in interest rates, which it manages primarily through regular financing activities. The Company generally maintains investments in cash equivalents and held to maturity investments and has occasionally invested in marketable securities. Microlending credit risk The Company is exposed to credit risk in its microlending activities, which provide unsecured short-term loans to qualifying customers. The Company manages this risk by performing an affordability test for each prospective customer and assigning a “creditworthiness score”, which takes into account a variety of factors such as other debts and total expenditures on normal household and lifestyle expenses. Credit risk Credit risk relates to the risk of loss that the Company would incur as a result of non-performance by counterparties. The Company maintains credit risk policies in respect of its counterparties to minimize overall credit risk. These policies include an evaluation of a potential counterparty’s financial condition, credit rating, and other credit criteria and risk mitigation tools as the Company’s management deems appropriate. With respect to credit risk on financial instruments, the Company maintains a policy of entering into such transactions only with South African and European financial institutions that have a credit rating of “B” (or its equivalent) or better, as determined by credit rating agencies such as Standard & Poor’s, Moody’s and Fitch Ratings. Equity price and liquidity risk Equity price risk relates to the risk of loss that the Company would incur as a result of the volatility in the exchange-traded price of equity securities that it holds. The market price of these securities may fluctuate for a variety of reasons and, consequently, the amount that the Company may obtain in a subsequent sale of these securities may significantly differ from the reported market value. Equity liquidity risk relates to the risk of loss that the Company would incur as a result of the lack of liquidity on the exchange on which those securities are listed. The Company may not be able to sell some or all of these securities at one time, or over an extended period of time without influencing the exchange traded price, or at all. Financial instruments The following section describes the valuation methodologies the Company uses to measure its significant financial assets and liabilities at fair value. In general, and where applicable, the Company uses quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing methodology would apply to Level 1 investments. If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, then the Company uses quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable either directly or indirectly. These investments would be included in Level 2 investments. In circumstances in which inputs are generally unobservable, values typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. Investments valued using such techniques are included in Level 3 investments. Asset measured at fair value using significant unobservable inputs – investment in Cell C The Company’s Level 3 asset represents an investment of 75,000,000 class “A” shares in Cell C, a significant mobile telecoms provider in South Africa. The Company used a discounted cash flow model developed by the Company to determine the fair value of its investment in Cell C as of September 30, 2021, and June 30, 2021, and valued Cell C at $0.0 (zero) at September 30, 2021, and June 30, 2021. The Company believes the Cell C business plan utilized in the Company’s valuation is reasonable based on the current performance and the expected changes in Cell C’s business model. The Company incorporates the payments under Cell C’s lease liabilities into the cash flow forecasts and assumes that Cell C’s deferred tax assets would be utilized over the forecast period. The Company utilized the latest revised business plan provided by Cell C management for the period ended December 31, 2025, for the September 30, 2021 valuation and the period ended December 31, 2025 for the June 30, 2021 valuation. 4. Fair value of financial instruments (continued) Financial instruments (continued) Asset measured at fair value using significant unobservable inputs – investment in Cell C (continued) The following key valuation inputs were used as of September 30, 2021 and June 30, 2021:
| Weighted Average Cost of Capital ("WACC"): | Between 18% and 24% over the period of the forecast |
| Long term growth rate: | 3% (3% as of June 30, 2021) |
| Marketability discount: | 10% |
| Minority discount: | 15% |
| Net adjusted external debt - September 30, 2021:(1) | ZAR 11.5 billion ($0.8 billion), no lease liabilities included |
| Net adjusted external debt - June 30, 2021:(2) | ZAR 11.2 billion ($0.8 billion), no lease liabilities included |
(1) translated from ZAR to U.S. dollars at exchange rates applicable as of September 30, 2021. (2) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30, 2021. The following table presents the impact on the carrying value of the Company’s Cell C investment of a 4.2% increase and 3.2% decrease in the WACC rate and the EBITDA margins used in the Cell C valuation on September 30, 2021, all amounts translated at exchange rates applicable as of September 30, 2021:
| Sensitivity for fair value of Cell C investment |  | 4.2% increase |  | 3.2% decrease |
| WACC rate | $ | - | $ | 543 |
| EBITDA margin | $ | 30 | $ | - |
The fair value of the Cell C shares as of September 30, 2021, represented 0% of the Company’s total assets, including these shares. The Company expects to hold these shares for an extended period of time and that there will be short-term equity price volatility with respect to these shares particularly given the current situation of Cell C’s business. Derivative transactions - Foreign exchange contracts As part of the Company’s risk management strategy, the Company enters into derivative transactions to mitigate exposures to foreign currencies using foreign exchange contracts. These foreign exchange contracts are over-the-counter derivative transactions. Substantially all of the Company’s derivative exposures are with counterparties that have long-term credit ratings of “B” (or equivalent) or better. The Company uses quoted prices in active markets for similar assets and liabilities to determine fair value (Level 2). The Company has no derivatives that require fair value measurement under Level 1 or 3 of the fair value hierarchy. The Company had no outstanding foreign exchange contracts as of September 30, 2021. The Company’s outstanding foreign exchange contracts as of June 30,2021, were as follows:
Notional amount ('000) | Strike price | Fair market | Maturity
EUR | 5.7 | USD | 1.1911 | USD | 1.1859 | July 02, 2021
4. Fair value of financial instruments (continued) The following table presents the Company’s assets measured at fair value on a recurring basis as of September 30, 2021, according to the fair value hierarchy:
|  |  |  |  |  | Quoted Price in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Total |
| Assets |  |  |  |  |  |  |  |  |  |  |  |
| Investment in Cell C | $ | - |  | $ | - |  | $ | - |  | $ | - |
| Related to insurance business: |  |  |  |  |  |  |  |  |  |  |  |
|  | Cash, cash equivalents and restricted cash (included in other long-term assets) |  | 380 |  |  | - |  |  | - |  |  | 380 |
|  | Fixed maturity investments (included in cash and cash equivalents) |  | 1,578 |  |  | - |  |  | - |  |  | 1,578 |
|  | Total assets at fair value | $ | 1,958 |  | $ | - |  | $ | - |  | $ | 1,958 |
The following table presents the Company’s assets measured at fair value on a recurring basis as of June 30, 2021, according to the fair value hierarchy:
|  |  |  |  |  | Quoted Price in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Total |
| Assets |  |  |  |  |  |  |  |  |  |  |  |
| Investment in Cell C | $ | - |  | $ | - |  | $ | - |  | $ | - |
| Related to insurance business |  |  |  |  |  |  |  |  |  |  |  |
|  | Cash and cash equivalents (included in other long-term assets) |  | 381 |  |  | - |  |  | - |  |  | 381 |
|  | Fixed maturity investments (included in cash and cash equivalents) |  | 3,158 |  |  | - |  |  | - |  |  | 3,158 |
|  |  | Total assets at fair value | $ | 3,539 |  | $ | - |  | $ | - |  | $ | 3,539 |
There have been no transfers in or out of Level 3 during the three months ended September 30, 2021 and 2020, respectively. There was no movement in the carrying value of assets measured at fair value on a recurring basis, and categorized within Level 3, during the three months ended September 30, 2021 and 2020. Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and categorized within Level 3, during the three months ended September 30, 2021:
|  |  |  |  |  | Carrying value |
| Assets |  |  |
| Balance as of June 30, 2021 | $ | - |
|  | Foreign currency adjustment(1) |  | - |
|  |  | Balance as of September 30, 2021 | $ | - |
(1) The foreign currency adjustment represents the effects of the fluctuations between the ZAR, and the U.S. dollar on the carrying value.Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and categorized within Level 3, during the three months ended September 30, 2020:
|  |  |  |  |  | Carrying value |
| Assets |  |  |
| Balance as at June 30, 2020 | $ | - |
|  | Foreign currency adjustment(1) |  | - |
|  |  | Balance as of September 30, 2020 | $ | - |
(1) The foreign currency adjustment represents the effects of the fluctuations between the ZAR, and the U.S. dollar on the carrying value. Assets measured at fair value on a nonrecurring basis The Company measures equity investments without readily determinable fair values at fair value on a nonrecurring basis. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections. An impairment charge is recorded when the cost of the asset exceeds its fair value and the excess is determined to be other-than-temporary. Refer to Note 5 for impairment charges recorded during the reporting periods presented herein. The Company has no liabilities that are measured at fair value on a nonrecurring basis.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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